Trump Expected to Reschedule Cannabis; Emerald Triangle Growers Respond

Foreground image of the Capitol Building in Washington D.C., USA. |Author= Andrew Bossi Wikicommons| 

Culminating a long-rumored move, President Trump is expected to sign an executive order this week rescheduling cannabis from schedule I to schedule III under the Controlled Substances Act. The change particularly will help cannabis businesses with their federal tax deductions, as IRS Code 280E will no longer apply. The code applies to those handling schedule I or II substances, and has kept cannabis businesses from deducting ordinary expenses. 

While cost of goods sold (COGS) could previously be deducted, many common business expenses could not. This included anything from employee health plans and non-production salaries to routine maintenance, all costs that now could be deducted on tax returns by legal marijuana businesses. 

Large players in the cannabis marketplace reacted enthusiastically to the news. Adam Stettner, CEO of cannabis lending platform FundCanna, said in a press release, “Rescheduling cannabis to Schedule III will deliver immediate, measurable impacts. Most notably, it eliminates Section 280E from the federal tax equation for licensed operators – a change that, for many, is the difference between treading water and turning a profit.”

But what may be true for large cannabis companies is not necessarily true for growers and cannabis businesses in the Emerald Triangle. Initial responses from local growers were decidedly mixed. 

Dylan Mattole of Mattole Valley Sungrown says of the promised rescheduling, “For growers we are already able to deduct cost of goods so that’s most of our expenses. It’s more impactful to retail and manufacturers who don’t have so many COGS.

Humboldt County Growers Alliance  President Hannah Whyte expressed similar sentiments, “It’s a minimal change for cultivators to be able to deduct marketing and professional services.”

Jason Gellman of Ridgeline Farms also has ambivalent feelings towards the schedule change, “Not sure about what will be better or worse. The only good thing I can say is that banking will be better for us.” 

Banking reform could be the next logical step in the regulatory process. As financial institutions potentially warm to working with cannabis businesses, further federal changes may be required. Recent discussions about marijuana banking reform on Capitol Hill revolve around the proposed “Secure and Fair Enforcement Regulation” (SAFER) Banking Act. 

While schedule III substances are less tightly controlled than schedule I, the move will not legalize cannabis businesses at the federal level. However, other federal legislation—such as the SAFER Act— would prevent federal regulators from punishing banks for working with licensed cannabis businesses. 

Senator Thom Tillis (R-NC), chairman of the Senate Banking Subcommittee on Consumer Protection, said this week of cannabis marketplace issues with financial institutions, “We’ve got to realize that two-thirds of the states have legal cannabis operations—either medicinal or recreational… Whether or not I agree with a given market activity, if it exists, the federal government should exist to regulate it and also [prevent] bad actions.” 

While potential banking reform under schedule III may be helpful, it’s not the end of needed reform for the Emerald Triangle’s cannabis businesses. Dylan Mattole states the ultimate goal, “We want de-scheduling, not rescheduling.”